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SUPREME COURT OF THE UNITED STATES
_________________
Nos. 14–840 and 14–841
_________________
FEDERAL ENERGY REGULATORY COMMISSION,
PETITIONER
14–840
v.
ELECTRIC POWER SUPPLY ASSOCIATION,
et al.
ENERNOC, INC., et al.,
PETITIONERS
14–841
v.
ELECTRIC POWER SUPPLY ASSOCIATION,
et al.
on writs of certiorari to the united states
court of appeals for the district of columbia circuit
[January 25, 2016]
Justice Kagan delivered the opinion of the
Court.
The Federal Power Act (FPA or Act), 41Stat.
1063, as amended, 16 U. S. C. §791a
et seq.,
authorizes the Federal Energy Regulatory Commission (FERC or
Commission) to regulate “the sale of electric energy at wholesale
in interstate commerce,” including both wholesale electricity rates
and any rule or practice “affecting” such rates. §§824(b), 824e(a).
But the law places beyond FERC’s power, and leaves to the States
alone, the regulation of “any other sale”—most notably, any retail
sale—of electricity. §824(b). That statutory division generates a
steady flow of jurisdictional disputes because—in point of fact if
not of law—the wholesale and retail markets in electricity are
inextricably linked.
These cases concern a practice called “demand
response,” in which operators of wholesale markets pay electricity
consumers for commitments
not to use power at certain times.
That practice arose because wholesale market operators can
sometimes—say, on a muggy August day—offer electricity both more
cheaply and more reliably by paying users to dial down their
consumption than by paying power plants to ramp up their
production. In the regulation challenged here, FERC required those
market operators, in specified circumstances, to compensate the two
services equivalently—that is, to pay the same price to demand
response providers for conserving energy as to generators for
making more of it.
Two issues are presented here. First, and
fundamen-tally, does the FPA permit FERC to regulate these demand
response transactions at all, or does any such rule impinge on the
States’ authority? Second, even if FERC has the requisite statutory
power, did the Commission fail to justify adequately why demand
response providers and electricity producers should receive the
same compensation? The court below ruled against FERC on both
scores. We disagree.
I
A
Federal regulation of electricity owes its
beginnings to one of this Court’s decisions. In the early 20th
century, state and local agencies oversaw nearly all generation,
transmission, and distribution of electricity. But this Court held
in
Public Util. Comm’n of R. I. v.
Attleboro Steam &
Elec. Co., 273 U. S. 83 –90 (1927), that the Commerce
Clause bars the States from regulating certain interstate
electricity transactions, including wholesale sales (
i.e.,
sales for resale) across state lines. That ruling created what
became known as the “
Attleboro gap”—a regulatory void which,
the Court pointedly noted, only Congress could fill. See
id., at 90.
Congress responded to that invitation by passing
the FPA in 1935. The Act charged FERC’s predecessor agency with
undertaking “effective federal regulation of the expanding business
of transmitting and selling electric power in interstate commerce.”
New York v.
FERC, 535 U. S. 1, 6 (2002) (quoting
Gulf States Util. Co. v.
FPC, 411 U. S. 747, 758
(1973) ). Under the statute, the Commission has authority to
regulate “the transmission of electric energy in interstate
commerce” and “the sale of electric energy at wholesale in
interstate commerce.” 16 U. S. C. §824(b)(1).
In particular, the FPA obligates FERC to oversee
all prices for those interstate transactions and all rules and
practices affecting such prices. The statute provides that “[a]ll
rates and charges made, demanded, or received by any public utility
for or in connection with” interstate transmissions or wholesale
sales—as well as “all rulesand regulations affecting or pertaining
to such rates or charges”—must be “just and reasonable.” §824d(a).
And if “any rate [or] charge,” or “any rule, regulation, practice,
or contract affecting such rate [or] charge[,]” falls short of that
standard, the Commission must rectify the problem: It then shall
determine what is “just and reasonable” and impose “the same by
order.” §824e(a).
Alongside those grants of power, however, the
Act also limits FERC’s regulatory reach, and thereby maintains a
zone of exclusive state jurisdiction. As pertinent here,
§824(b)(1)—the same provision that gives FERC author-ity over
wholesale sales—states that “this subchapter,” including its
delegation to FERC, “shall not apply toany other sale of electric
energy.” Accordingly, the Commission may not regulate either
within-state wholesale sales or, more pertinent here, retail sales
of electricity (
i.e., sales directly to users). See
New
York, 535 U. S., at17, 23. State utility commissions
continue to oversee those transactions.
Since the FPA’s passage, electricity has
increasingly become a competitive interstate business, and FERC’s
role has evolved accordingly. Decades ago, state or local utilities
controlled their own power plants, transmission lines, and delivery
systems, operating as vertically integrated monopolies in confined
geographic areas. That is no longer so. Independent power plants
now abound, and almostall electricity flows not through “the local
power networks of the past,” but instead through an interconnected
“grid” of near-nationwide scope. See
id., at 7 (“electricity
that enters the grid immediately becomes a part of a vast pool of
energy that is constantly moving in interstate commerce,” linking
producers and users across the country)
. In this new world,
FERC often forgoes the cost-based rate-setting traditionally used
to prevent monopolistic pricing. The Commission instead undertakes
to ensure “just and reasonable” wholesale rates by enhancing
competition—attempting, as we recently explained, “to break down
regulatory and economic barriers that hinder a free market in
wholesale electricity.”
Morgan Stanley Capital Group Inc. v.
Public Util. Dist. No. 1 of Snohomish Cty., 554 U. S.
527, 536 (2008) .
As part of that effort, FERC encouraged the
creation of nonprofit entities to manage wholesale markets on a
regional basis. Seven such wholesale market operators now serve
areas with roughly two-thirds of the country’s electricity “load”
(an industry term for the amount of electricity used). See FERC,
Energy Primer: A Handbook of Energy Market Basics 58–59 (Nov. 2015)
(EnergyPrimer). Each administers a portion of the grid, providing
generators with access to transmission lines and ensuring that the
network conducts electricity reliably. See
ibid. And still
more important for present purposes, each operator conducts a
competitive auction to set wholesale prices for electricity.
These wholesale auctions serve to balance supply
and demand on a continuous basis, producing prices for electricity
that reflect its value at given locations and times throughout each
day. Such a real-time mechanism is needed because, unlike most
products, electricity cannot be stored effectively. Suppliers must
generate—every day, hour, and minute—the exact amount of power
necessary to meet demand from the utilities and other “load-serving
entities” (LSEs) that buy power at wholesale for resale to users.
To ensure that happens, wholesale market operators obtain (1)
orders from LSEs indicating how much electricity they need at
various times and (2) bids from generators specifying how much
electricity they can produce at those times and how much they will
charge for it. Operators accept the generators’ bids in order of
cost (least expensive first) until they satisfy the LSEs’ total
demand. The price of the last unit of electricity purchased is then
paid to every supplier whose bid was accepted, regardless of its
actual offer; and the total cost is split among the LSEs in
proportion to how much energy they have ordered. So, for example,
suppose that at 9 a.m. on August 15 four plants serving Washington,
D. C. can each produce some amount of electricity for,
respectively, $10/unit, $20/unit, $30/unit, and $40/unit. And
suppose that LSEs’ demand at that time and place is met after the
operator accepts the three cheapest bids. The first three
generators would then all receive $30/unit. That amount is (think
back to Econ 101) the marginal cost—
i.e., the added cost of
meeting another unit of demand—which is the price an efficient
market would produce. See 1 A. Kahn, The Economics of Regulation:
Principles and Institutions 65–67 (1988). FERC calls that cost (in
jargon that will soon become oddly familiar) the locational
marginal price, or LMP.[
1]
As in any market, when wholesale buyers’ demand
for electricity increases, the price they must pay rises
correspondingly; and in those times of peak load, the grid’s
reliability may also falter. Suppose that by 2 p.m. on August 15,
it is 98 degrees in D. C. In every home, store, or office, people
are turning the air conditioning up. To keep providing power to
their customers, utilities and other LSEs must ask their market
operator for more electricity. To meet that spike in demand, the
operator will have to accept more expensive bids from suppliers.
The operator, that is, will have to agree to the $40 bid that it
spurned before—and maybe, beyond that, to bids of $50 or $60 or
$70. In such periods, operators often must call on extremely
inefficient generators whose high costs of production cause them to
sit idle most of the time. See Energy Primer 41–42. As that
happens, LMP—the price paid by
all LSEs to
all
suppliers—climbs ever higher. And meanwhile, the increased flow of
electricity through the grid threatens to overload transmission
lines. See
id., at 44. As every consumer knows, it is just
when the weather is hottest and the need for air conditioning most
acute that blackouts, brownouts, and other service problems tend to
occur.
Making matters worse, the wholesale electricity
market lacks the self-correcting mechanism of other markets.
Usually, when the price of a product rises, buyers natu-rally
adjust by reducing how much they purchase. But con-sumers of
electricity—and therefore the utilities and other LSEs buying power
for them at wholesale—do not respond to price signals in that way.
To use the economic term, demand for electricity is inelastic. That
is in part because electricity is a necessity with few ready
substitutes: When the temperature reaches 98 degrees, many people
see no option but to switch on the AC. And still more: Many State
regulators insulate consumers from short-term fluctuations in
wholesale prices by insisting that LSEs set stable retail rates.
See
id., at 41, 43–44. That, one might say, short-circuits
the normal rules of economic behavior. Even in peak periods, as
costs surge in the wholesale market, consumers feel no pinch, and
so keep running the AC as before. That means, in turn, that LSEs
must keep buying power to send to those users—no matter that
wholesale prices spiral out of control and increased usage risks
overtaxing the grid.
But what if there were an alternative to that
scenario? Consider what would happen if wholesale market operators
could induce consumers to refrain from using (and so LSEs from
buying) electricity during peak periods. Whenever doing that costs
less than adding more power, an operator could bring electricity
supply and demand into balance at a lower price. And
simultaneously, the operator could ease pressure on the grid, thus
protecting against system failures. That is the idea behind the
practice at issue here: Wholesale demand response, as it is called,
pays consumers for commitments to curtail their use of power, so as
to curb wholesale rates and prevent grid breakdowns. See
id., at 44–46.[
2]
These demand response programs work through the
operators’ regular auctions. Aggregators of multiple users of
electricity, as well as large-scale individual users like factories
or big-box stores, submit bids to decrease electricity consumption
by a set amount at a set time for a set price. The wholesale market
operators treat those offers just like bids from generators to
increase supply. The operators, that is, rank order all the
bids—both to produce and to refrain from consuming electricity—from
least to most expensive, and then accept the lowest bids until
supply and demand come into equipoise. And, once again, the LSEs
pick up the cost of all those payments. So, to return to our prior
example, if a store submitted an offer
not to use a unit of
electricity at 2 p.m. on August 15 for $35, the operator would
accept that bid before calling on the generator that offered to
produce a unit of power for $40. That would result in a lower
LMP—again, wholesale market price—than if the market operator could
not avail itself of demand response pledges. See ISO/RTO Council,
Harnessing the Power of Demand: How ISOs and RTOs Are Integrating
Demand Response Into Wholesale Electricity Markets 40–43 (2007)
(estimating that, in one market, a demand response program reducing
electricity usage by 3% in peak hours would lead to price declines
of 6% to 12%). And it would decrease the risk of blackouts and
other service problems.
Wholesale market operators began using demand
response some 15 years ago, soon after they assumed the role of
overseeing wholesale electricity sales. Recognizing the value of
demand response for both system reliability and efficient pricing,
they urged FERC to allow them to implement such programs. See,
e.g., PJM Interconnection, L. L. C., Order
Accepting Tariff Sheets as Modified, 95 FERC ¶61,306 (2001);
California Independent System Operator Corp., Order
Conditionally Accepting for Filing Tariff Revisions, 91 FERC
¶61,256 (2000). And as demand response went into effect, market
participants of many kinds came to view it—in the words of
respondent Electric Power Supply Association (EPSA)—as an
“important element[ ] of robust, competitive wholesale
electricity markets.” App. 94, EPSA, Comments on Proposed Rule on
Demand Response Compensation in Organized Wholesale Energy Markets
(May 12, 2010).
Congress added to the chorus of voices praising
wholesale demand response. In the Energy Policy Act of 2005,
119Stat. 594 (EPAct), it declared as “the policy of the United
States” that such demand response “shall be encouraged.” §1252(f),
119Stat. 966, 16 U. S. C. §2642 note. In particular,
Congress directed, the deployment of “technology and devices that
enable electricity customers to participate in . . .
demand response systems shall be facilitated, and unnecessary
barriers to demand response participation in energy . . .
markets shall be eliminated.”
Ibid.[
3]
B
Spurred on by Congress, the Commission
determined to take a more active role in promoting wholesale demand
response programs. In 2008, FERC issued Order No. 719, which (among
other things) requires wholesale market operators to receive demand
response bids from aggregators of electricity consumers, except
when the state regulatory authority overseeing those users’ retail
purchases bars such demand response participation. See 73 Fed. Reg.
64119, ¶154 (codified 18 CFR §35.28(g)(1) (2015)). That original
order allowed operators to compensate demand response providers
differently from generators if they so chose. No party sought
judicial review.
Concerned that Order No. 719 had not gone far
enough, FERC issued the rule under review here in 2011, with one
commissioner dissenting. See
Demand Response Competition in
Organized Wholesale Energy Markets, Order No. 745, 76 Fed. Reg.
16658 (Rule) (codified 18 CFR §35.28(g)(1)(v)). The Rule attempts
to ensure “just and reasonable” wholesale rates by requiring market
operators to appropriately compensate demand response providers and
thus bring about “meaningful demand-side participation” in the
wholesale markets. 76 Fed. Reg. 16658, ¶1, 16660, ¶10; 16
U. S. C. §824d(a). The Rule’s most significant provision
directs operators, under two specified conditions, to pay LMP for
any accepted demand response bid, just as they do for successful
supply bids. See 76 Fed. Reg. 16666–16669, ¶¶45–67. In other words,
the Rule requires that demand response providers in those
circumstances receive as much for conserving electricity as
generators do for producing it.
The two specified conditions ensure that a bid
to use less electricity provides the same value to the wholesale
market as a bid to make more. First, a demand response bidder must
have “the capability to provide the service” offered; it must, that
is, actually be able to reduce electricity use and thereby obviate
the operator’s need to secure additional power.
Id., at
16666, ¶¶48–49. Second, paying LMP for a demand response bid “must
be cost-effective,” as measured by a standard called “the net
benefits test.”
Ibid., ¶48. That test makes certain that
accepting a lower-priced demand response bid over a higher-priced
supply bid will actually save LSEs (
i.e., wholesale
purchasers) money. In some situations it will not, even though
accepting a lower-priced bid (by definition) reduces LMP. That is
because (to oversimplify a bit) LSEs share the cost of paying
successful bidders, and reduced electricity use makes some LSEs
drop out of the market, placing a proportionally greater burden on
those that are left. Each remaining LSE may thus wind up paying
more even though the total bill is lower; or said otherwise, the
costs associated with an LSE’s increased share of compensating bids
may exceed the savings that the LSE obtains from a lower wholesale
price.[
4] The net benefits test
screens out such counterproductive demand response bids, exempting
them from the Rule’s compensation requirement. See
id., at
16659, 16666–16667, ¶¶3, 50–53. What remains are only those offers
whose acceptance will result in actual savings to wholesale
purchasers (along with more reliable service to end users). See
id., at 16671, ¶¶78–80.
The Rule rejected an alternative scheme for
compensating demand response bids. Several commenters had urged
that, in paying a demand response provider, an operator should
subtract from the ordinary wholesale price the savings that the
provider nets by not buying electricity on the retail market.
Otherwise, the commenters claimed, demand response providers would
receive a kind of“double-payment” relative to generators. See
id., at 16663, ¶24. That proposal, which the dissenting
commissioner largely accepted, became known as LMP minus G, or more
simply LMP-G, where “G” stands for the retail price of electricity.
See
id., at 16668, ¶60, 16680 (Moeller, dissenting). But
FERC explained that, under the conditions it had specified, the
value of an accepted demand response bid to the wholesale market is
identical to that of an accepted supply bid because each succeeds
in cost-effectively “balanc[ing] supply and demand.”
Id., at
16667, ¶55. And, the Commission reasoned, that comparable value is
what ought to matter given FERC’s goal of strengthening competition
in the wholesale market: Rates should reflect not the costs that
each market participant incurs, but instead the services it
provides. See
id., at 16668, ¶62. Moreover, the Rule stated,
compensating demand response bids at their actual
value—
i.e., LMP—will help overcome various technological
barriers, including a lack of needed infrastructure, that impede
aggregators and large-scale users of electricity from fully
participating in demand response programs. See
id., at
16667–16668, ¶¶57–58.
The Rule also responded to comments challenging
FERC’s statutory authority to regulate the compensation operators
pay for demand response bids. Pointing to the Commission’s analysis
in Order No. 719, the Rule explained that the FPA gives FERC
jurisdiction over such bids because they “directly affect[ ]
wholesale rates.”
Id., at 16676, ¶112 (citing 74
id.,
at 37783, ¶47, and 18 U. S. C. §824d). Nonetheless, the
Rule noted, FERC would continue Order No. 719’s policy of allowing
any state regulatory body to prohibit consumers in its retail
market from taking part in wholesale demand response programs. See
76 Fed. Reg. 16676, ¶114; 73
id., at 64119, ¶154.
Accordingly, the Rule does not require any “action[ ] that
would violate State laws or regulations.” 76
id., at 16676,
¶114.
C
A divided panel of the Court of Appeals for
the District of Columbia Circuit vacated the Rule as “
ultra
vires agency action.” 753 F. 3d 216, 225 (2014). The court
held that FERC lacked authority to issue the Rule even though
“demand response compensation affects the wholesale market.”
Id., at 221. The Commission’s “jurisdiction to regulate
practices ‘affecting’ rates,” the court stated, “does not erase the
specific limit[ ]” that the FPA imposes on FERC’s regulation
of retail sales.
Id., at 222. And the Rule, the court
concluded, exceeds that limit: In “luring . . .
retail customers” into the wholesale market, and causing
them to decrease “levels of
retail electricity consumption,”
the Rule engages in “direct regulation of the retail market.”
Id., at 223–224.
The Court of Appeals held, alternatively, that
the Rule is arbitrary and capricious under the Administrative
Procedure Act, 5 U. S. C. §706(2)(A), because FERC failed
to “adequately explain[ ]” why paying LMP to demand response
providers “results in just compensation.” 753 F. 3d
, at
225. According to the court, FERC did not “properly consider” the
view that such a payment would give those providers a windfall by
leaving them with “the full LMP
plus . . . the
savings associated with” reduced consumption.
Ibid. (quoting
Demand Response Competition in Organized Wholesale Energy
Markets: Order on Rehearing and Clarification, Order No. 745–A
(Rehearing Order), 137 FERC ¶61,215, p. 62,316 (2011) (Moeller,
dissenting)). The court dismissed out of hand the idea that
“comparable contributions [could] be the reason for equal
compensation.” 753 F. 3d, at 225
.
Judge Edwards dissented. He explained that the
rules governing wholesale demand response have a “direct effect
. . . on wholesale electricity rates squarely within
FERC’s jurisdiction.”
Id., at 227. And in setting those
rules, he argued, FERC did not engage in “direct regulation of the
retail market”; rather, “[a]uthority over retail rates
. . . remains vested solely in the States.”
Id.,
at 234 (internal quotation marks omitted). Finally, Judge Edwards
rejected the majority’s view that the Rule is arbitrary and
capricious. He noted the substantial deference due to the
Commission in cases involving ratemaking, and concluded that FERC
provided a “thorough” and “reasonable” explanation for choosing LMP
as the appropriate compensation formula.
Id., at
236–238.
We granted certiorari, 575 U. S. ___
(2015), to decide whether the Commission has statutory authority to
regulate wholesale market operators’ compensation of demand
response bids and, if so, whether the Rule challenged here is
arbitrary and capricious. We now hold that the Commission has such
power and that the Rule is adequately reasoned. We accordingly
reverse.
II
Our analysis of FERC’s regulatory authority
proceeds in three parts. First, the practices at issue in the
Rule—market operators’ payments for demand response
commitments—directly affect wholesale rates. Second, in addressing
those practices, the Commission has not regulated retail sales.
Taken together, those conclusions establish that the Rule complies
with the FPA’s plain terms. And third, the contrary view would
conflict with the Act’s core purposes by preventing all use of a
tool that no one (not even EPSA) disputes will curb prices and
enhance reliability in the wholesale electricity market.[
5]
A
The FPA delegates responsibility to FERC to
regulate the interstate wholesale market for electricity—both
wholesale rates and the panoply of rules and practices affecting
them. As noted earlier, the Act establishesa scheme for federal
regulation of “the sale of electric energy at wholesale in
interstate commerce.” 16 U. S. C. §824(b)(1); see
supra, at 3. Under the statute, “[a]ll rates and charges
made, demanded, or received by any public utility for or in
connection with” interstate wholesale sales “shall be just and
reasonable”; so too shall “all rules and regulations affecting or
pertaining to such rates orcharges.” §824d(a). And if FERC sees a
violation of that standard, it must take remedial action. More
specifically, whenever the Commission “shall find that any rate
[or] charge”—or “any rule, regulation, practice, or contract
affecting such rate [or] charge”—is “unjust [or] unreasonable,”
then the Commission “shall determine the just and reasonable rate,
charge[,] rule, regulation, practice or contract” and impose “the
same by order.” §824e(a). That means FERC has the authority—and,
indeed, the duty—to ensure that rules or practices “affecting”
wholesale rates are just and reasonable.
Taken for all it is worth, that statutory grant
could extend FERC’s power to some surprising places. As the court
below noted, markets in all electricity’s inputs—steel, fuel, and
labor most prominent among them—might affect generators’ supply of
power. See 753 F. 3d, at 221;
id., at 235 (Edwards, J.,
dissenting). And for that matter, markets in just about
everything—the whole economy, as it were—might influence LSEs’
demand. So if indirect or tangential impacts on wholesale
electricity rates sufficed, FERC could regulate now in one
industry, now in another, changing a vast array of rules and
practices to implement its vision of reasonableness and justice. We
cannot imagine that was what Congress had in mind.
For that reason, an earlier D. C. Circuit
decision adopted, and we now approve, a common-sense construction
ofthe FPA’s language, limiting FERC’s “affecting” jurisdiction to
rules or practices that “
directly affect the [wholesale]
rate.”
California Independent System Operator Corp. v.
FERC, 372 F. 3d 395, 403 (2004) (emphasis added); see
753 F. 3d, at 235 (Edwards, J., dissenting). As we have
explained in addressing similar terms like “relating to” or “in
connection with,” a non-hyperliteral reading is needed to prevent
the statute from assuming near-infinite breadth. See
New York
State Conference of Blue Cross & Blue Shield Plans v.
Travelers Ins. Co., 514 U. S. 645, 655 (1995) (“If
‘relate to’ were taken to extend to the furthest stretch of its
indeterminacy, then for all practical purposes [the statute] would
never run its course”);
Maracich v.
Spears, 570
U. S. ___, ___ (2013) (slip op., at 9) (“The phrase ‘in
connection with’ is essentially indeterminat[e] because
connections, like relations, stop nowhere” (internal quotation
marks omitted)). The Commission itself incorporated the D. C.
Circuit’s standard in addressing its authority to issue the Rule.
See 76 Fed. Reg. 16676, ¶112 (stating that FERC has jurisdiction
because wholesale demand response “directly affects wholesale
rates”). We think it right to do the same.
Still, the rules governing wholesale demand
response programs meet that standard with room to spare. In general
(and as earlier described), wholesale market operators employ
demand response bids in competitive auctions that balance wholesale
supply and demand and thereby set wholesale prices. See
supra, at 7–8. The operators accept such bids if and only if
they bring down the wholesale rate by displacing higher-priced
generation. And when that occurs (most often in peak periods), the
easing of pressure on the grid, and the avoidance of service
problems, further contributes to lower charges. See Brief for Grid
Engineers et al. as
Amici Curiae 26–27. Wholesale
demand response, in short, is all about reducing wholesale rates;
so too, then, the rules and practices that determine how those
programs operate.
And that is particularly true of the formula
that operators use to compensate demand response providers. As in
other areas of life, greater pay leads to greater participation. If
rewarded at LMP, rather than at some lesser amount, more demand
response providers will enter more bids capable of displacing
generation, thus necessarily lowering wholesale electricity prices.
Further, the Commission found, heightened demand response
participation will put “downward pressure” on generators’ own bids,
encouraging power plants to offer their product at reduced prices
lest they come away empty-handed from the bidding process. 76 Fed.
Reg. 16660, ¶10. That, too, ratchets down the rates wholesale
purchasers pay. Compensation for demand response thus directly
affects wholesale prices. Indeed, it is hard to think of a practice
that does so more.
B
The above conclusion does not end our inquiry
into the Commission’s statutory authority; to uphold the Rule, we
also must determine that it does not regulate
retail
electricity sales. That is because, as earlier described, §824(b)
“limit[s] FERC’s sale jurisdiction to that at wholesale,” reserving
regulatory authority over retail sales (as well as intrastate
wholesale sales) to the States.
New York, 535 U. S., at
17 (emphasis deleted); see 16 U. S. C. §824(b);
supra, at 3.[
6] FERC
cannot take an action transgressing that limit no matter how
direct, or dramatic, its impact on wholesale rates. Suppose, to
take a far-fetched example, that the Commission issued a regulation
compelling every consumer to buy a certain amount of electricity on
the retail market. Such a rule would necessarily determine the load
purchased on the wholesale market too, and thus would alter
wholesale prices. But even given that ineluctable consequence, the
regulation would exceed FERC’s authority, as defined in §824(b),
because it specifies terms of sale at retail—which is a job for the
States alone.[
7]
Yet a FERC regulation does not run afoul of
§824(b)’s proscription just because it affects—even
substantially—the quantity or terms of retail sales. It is a fact
of eco-nomic life that the wholesale and retail markets in
electricity, as in every other known product, are not hermetically
sealed from each other. To the contrary, transactions that occur on
the wholesale market have natural consequences at the retail level.
And so too, of necessity, will FERC’s regulation of those wholesale
matters. Cf.
Oneok, Inc. v.
Learjet, Inc., 575
U. S. ___, ___ (2015) (slip op., at 13) (noting that in the
similarly structured world of natural gas regulation, a “Platonic
ideal” of strict separation between federal and state realms cannot
exist). When FERC sets a wholesale rate, when it changes wholesale
market rules, when it allocates electricity as between wholesale
purchasers—in short, when it takes virtually any action respecting
wholesale transactions—it has some effect, in either the short or
the long term, on retail rates. That is of no legal consequence.
See,
e.g., Mississippi Power & Light Co. v.
Mississippi ex rel. Moore, 487 U. S. 354 –373 (1988)
(holding that an order regulating wholesale purchases fell within
FERC’s jurisdiction, and preempted contrary state action, even
though it clearly affected retail prices);
Nantahala Power &
Light Co. v.
Thornburg, 476 U. S. 953 –961, 970
(1986) (same);
FPC v.
Louisiana Power & Light
Co., 406 U. S. 621 –641 (1972) (holding similarly in the
natural gas context). When FERC regulates what takes place on the
wholesale market, as part of carrying out its charge to improve how
that market runs, then no matter the effect on retail rates,
§824(b) imposes no bar.
And in setting rules for demand response, that
is all FERC has done. The Commission’s Rule addresses—and addresses
only—transactions occurring on the wholesale market. Recall once
again how demand response works—and forgive the coming italics. See
supra, at 7–8.
Wholesale market operators administer
the entire program, receiving every demand response bid made. Those
operators accept such a bid at the mandated price when (and only
when) the bid provides value to the
wholesale market by
balancing supply and demand more “cost-effective[ly]”—
i.e.,
at a lower cost to
wholesale purchasers—than a bid to
generate power. 76 Fed. Reg. 16659, 16666, ¶2, 48. The compensation
paid for a successful bid (LMP) is whatever the operator’s auction
has determined is the marginal price of
wholesale
electricity at a particular location and time. See
id., at
16659, ¶2. And those footing the bill are the same
wholesale
purchasers that have benefited from the lower
wholesale
price demand response participation has produced. See
id.,
at 16674, ¶¶99–100. In sum, whatever the effects at the retail
level, every aspect of the regulatory plan happens exclusively on
the wholesale market and governs exclusively that market’s
rules.
What is more, the Commission’s justifications
for regulating demand response are all about, and only about,
improving the wholesale market. Cf.
Oneok, 575 U. S.,
at ___ (slip op., at 11) (considering “the
target at which
[a] law
aims” in determining whether a State is properly
regulating retail or, instead, improperly regulating wholesale
sales). In Order No. 719, FERC explained that demand response
participation could help create a “well-functioning competitive
wholesale electric energy market” with “reduce[d] wholesale power
prices” and “enhance[d] reliability.” 73 Fed. Reg. 64103, ¶16. And
in the Rule under review, FERC expanded on that theme. It listed
the several ways in which “demand response in organized wholesale
energy markets can help improve the functioning and competitiveness
of those markets”: by replacing high-priced, inefficient
generation; exerting “downward pressure” on “generator bidding
strategies”; and “support[ing] system reliability.” 76
id.,
at 16660, ¶10; see Notice of Proposed Rulemaking for Order No. 745,
75
id., at 15363–15364, ¶4 (2010) (noting similar aims);
supra, at 7–8. FERC, that is, focused wholly on the benefits
that demand response participation (in the wholesale market) could
bring to the wholesale market. The retail market figures no more in
the Rule’s goals than in the mechanism through which the Rule
operates.
EPSA’s primary argument that FERC has usurped
state power (echoed in the dissent) maintains that the Rule
“effectively,” even though not “nominal[ly],” regulates retail
prices. See,
e.g., Brief for Respondents 1, 10, 23–27,
35–39; Tr. of Oral Arg. 26, 30;
post, at 4–6. The argument
begins on universally accepted ground: Under §824(b), only the
States, not FERC, can set retail rates. See,
e.g.,
FPC v.
Conway Corp., 426 U. S. 271, 276 (1976) .
But as EPSA concedes, that tenet alone cannot make its case,
because FERC’s Rule does not set actual rates: States continue to
make or approve all retail rates, and in doing so may insulate them
from price fluctuations in the wholesale market. See Brief for
Respondents 39. Still, EPSA contends, rudimentary economic analysis
shows that the Rule does the “functional equivalen[t]” of
setting—more particularly, of raising—retail rates.
Id., at
36. That is because the opportunity to make demand response bids in
the wholesale market changes consumers’ calculations. In deciding
whether to buy electricity at retail, economically-minded consumers
now consider
both the cost of making such a purchase
and the cost of forgoing a possible demand response payment.
So, EPSA explains, if a factory can buy electricity for $10/unit,
but can earn $5/unit for
not buying power at peak times,
then the effective retail rate at those times is $15/unit: the $10
the factory paid at retail plus the $5 it passed up. See
id., at 10. And by thus increasing effective retail rates,
EPSA concludes, FERC trespasses on the States’ ground.
The modifier “effective” is doing quite a lot of
work in that argument—more work than any conventional understanding
of rate-setting allows. The standard dictionary definition of the
term “rate” (as used with reference to prices) is “[a]n amount paid
or charged for a good or service.” Black’s Law Dictionary 1452
(10th ed. 2014); see,
e.g., 13 Oxford English Dictionary
208–209 (2d ed. 1989) (“rate” means “price,” “cost,” or “sum paid
or asked for a . . . thing”). To set a retail electricity
rate is thus to establish the amount of money a consumer will hand
over in exchange for power. Nothing in §824(b) or any other part of
the FPA suggests a more expansive notion, in which FERC sets a rate
for electricity merely by altering consumers’ incentives to
purchase that product.[
8] And
neither does anything in this Court’s caselaw. Our decisions
uniformly speak about rates, for electricity and all else, in only
their most prosaic, garden-variety sense. As the Solicitor General
summarized that view, “the rate is what it is.” Tr. of Oral Arg. 7.
It is the price paid, not the price paid
plus the cost of a
forgone economic opportunity.
Consider a familiar scenario to see what is odd
about EPSA’s theory. Imagine that a flight is overbooked. The
airline offers passengers $300 to move to a later plane that has
extra seats. On EPSA’s view, that offer adds $300—the cost of not
accepting the airline’s proffered payment—to the price of every
continuing passenger’s ticket. So a person who originally spent
$400 for his ticket, and decides to reject the airline’s proposal,
paid an “effective” price of $700. But would any passenger getting
off the plane say he had paid $700 to fly? That is highly unlikely.
And airline lawyers and regulators (including many, we are sure,
with economics Ph. D.’s) appear to share that common-sensical
view. It is in fact illegal to “increase the price” of “air
transportation . . . after [such] air transportation has
been purchased by the consumer.” 14 CFR §399.88(a) (2015). But it
is a safe bet that no airline has ever gotten into trouble by
offering a payment not to fly.[
9]
And EPSA’s “effective price increase” claim
fares even worse when it comes to payments not to use electricity.
In EPSA’s universe, a wholesale demand response program raises
retail rates by compelling consumers to “pay” the price of forgoing
demand response compensation. But such a consumer would be even
more surprised than our air traveler to learn of that price hike,
because the natural consequence of wholesale demand response
programs is to bring
down retail rates. Once again,
wholesale market operators accept demand response bids only if
those offers lower the wholesale price. See
supra, at 7–8.
And when wholesale prices go down, retail prices tend to follow,
because state regulators can, and mostly do, insist that wholesale
buyers eventually pass on their savings to consumers. EPSA’s
theoretical construct thus runs headlong into the real world of
electricity sales—where the Rule does anything but increase retail
prices.
EPSA’s second argument that FERC intruded into
the States’ sphere is more historical and purposive in nature.
According to EPSA, FERC deliberately “lured [retail customers] into
the[ ] wholesale markets”—and, more, FERC did so “only because
[it was] dissatisfied with the States’ exercise of their undoubted
authority” under §824(b) to regulate retail sales. Brief for
Respondents 23; see
id., at 2–3, 31, 34. In particular, EPSA
asserts, FERC disapproved of “many States’ continued preference”
for stable pricing—that is, for insulating retail rates from
short-term fluctuations in wholesale costs.
Id., at 28. In
promoting demand response programs—or, in EPSA’s somewhat less
neutral language, in “forc[ing] retail customers to respond to
wholesale price signals”—FERC acted “for the express purpose of
overriding” that state policy.
Id., at 29, 49.
That claim initially founders on the true facts
of how wholesale demand response came about. Contra EPSA, the
Commission did not invent the practice. Rather, and as described
earlier, the impetus came from wholesale market operators. See
supra, at 8. In designing their newly organized markets,
those operators recognized almost at once that demand response
would lower wholesale electricity prices and improve the grid’s
reliability. So they quickly sought, and obtained, FERC’s approval
to institute such programs. Demand response, then, emerged not as a
Commission power grab, but instead as a market-generated innovation
for more optimally balancing wholesale electricity supply and
demand.
And when, years later (after Congress, too,
endorsed the practice), FERC began to play a more proactive role,
it did so for the identical reason: to enhance the wholesale, not
retail, electricity market. Like the market operators, FERC saw
that sky-high demand in peak periods threatened network breakdowns,
compelled purchases from inefficient generators, and consequently
drove up wholesale prices. See,
e.g., 73 Fed. Reg. 64103,
¶16; 76
id., at 16660, ¶10; see
supra, at 6–7.
Addressing those problems—which demand response does—falls within
the sweet spot of FERC’s statutory charge. So FERC took action
promoting the practice. No doubt FERC recognized connections,
running in both directions, between the States’ policies and its
own. The Commission understood that by insulating consumers from
price fluctuations, States contributed to the wholesale market’s
difficulties in optimally balancing supply and demand. See 76 Fed.
Reg. 16667–16668, ¶¶57, 59;
supra, at 6–7. And FERC realized
that increased use of demand response in that market would (by
definition) inhibit retail sales otherwise subject to State
control. See 73 Fed. Reg. 64167. But nothing supports EPSA’s more
feverish idea that the Commission’s interest in wholesale demand
response emerged from a yen to usurp State authority over, or
impose its own regulatory agenda on, retail sales. In promoting
demand response, FERC did no more than follow the dictates of its
regulatory mission to improve the competitiveness, efficiency, and
reliability of the wholesale market.
Indeed, the finishing blow to both of EPSA’s
arguments comes from FERC’s notable solicitude toward the States.
As explained earlier, the Rule allows any State regulator to
prohibit its consumers from making demand response bids in the
wholesale market. See 76
id., at 16676, ¶114; 73
id.,
at 64119, ¶154;
supra, at 12. Although claiming the ability
to negate such state decisions, the Commission chose not to do so
in recognition of the linkage between wholesale and retail markets
and the States’ role in overseeing retail sales. See 76 Fed. Reg.
16676, ¶¶112–114. The veto power thus granted to the States belies
EPSA’s view that FERC aimed to “obliterate[ ]” their
regulatory authority or “override” their pricing policies. Brief
for Respondents 29, 33. And that veto gives States the means to
block whatever “effective” increases in retail rates demand
response programs might be thought to produce. Wholesale demand
response as implemented in the Rule is a program of cooperative
federalism, in which the States retain the last word. That feature
of the Rule removes any conceivable doubt as to its compliance with
§824(b)’s allocation of federal and state authority.
C
One last point, about how EPSA’s position
would subvert the FPA.
EPSA’s jurisdictional claim, as may be clear by
now, stretches very far. Its point is not that this single Rule,
relating to compensation levels, exceeds FERC’s power. Instead,
EPSA’s arguments—that rewarding energy conservation raises
effective retail rates and that “luring” consumers onto wholesale
markets aims to disrupt state policies—suggest that the entire
practice of wholesale demand response falls outside what FERC can
regulate. EPSA proudly embraces that point: FERC, it declares, “has
no business regulating ‘demand response’ at all.”
Id., at
24. Under EPSA’s theory, FERC’s earlier Order No. 719, although
never challenged, would also be ultra vires because it requires
operators to open their markets to demand response bids. And more:
FERC could not even approve an operator’s voluntary plan to
administer a demand response program. See Tr. of Oral Arg. 44. That
too would improperly allow a retail customer to participate in a
wholesale market.
Yet state commissions could not regulate demand
response bids either. EPSA essentially concedes this point. See
Brief for Respondents 46 (“That may well be true”). And so it must.
The FPA “leaves no room either for direct state regulation of the
prices of interstate wholesales” or for regulation that “would
indirectly achieve the same result.”
Northern Natural Gas
Co. v.
State Corporation Comm’n of Kan., 372 U. S.
84, 91 (1963) . A State could not oversee offers, made in a
wholesale market operator’s auction, that help to set wholesale
prices. Any effort of that kind would be preempted.
And all of that creates a problem. If neither
FERC nor the States can regulate wholesale demand response, then by
definition no one can. But under the Act, no electricity
transaction can proceed unless it is regulable by someone. As
earlier described, Congress passed the FPA precisely to eliminate
vacuums of authority over the electricity markets. See
supra, at 2–3. The Act makes federal and state powers
“complementary” and “comprehensive,” so that “there [will] be no
‘gaps’ for private interests to subvert the public welfare.”
Louisiana Power & Light Co., 406 U. S., at 631. Or
said otherwise, the statute prevents the creation of any regulatory
“no man’s land.”
FPC v.
Transcontinental Gas Pipe Line
Corp., 365 U. S. 1, 19 (1961) ; see
id., at 28.
Some entity must have jurisdiction to regulate each and every
practice that takes place in the electricity markets, demand
response no less than any other.[
10]
For that reason, the upshot of EPSA’s view would
be to extinguish the wholesale demand response program in its
entirety. Under the FPA, each market operator must submit to FERC
all its proposed rules and procedures. See 16 U. S. C.
§§824d(c)–(d); 18 CFR §§35.28(c)(4), 35.3(a)(1). Assume that, as
EPSA argues, FERC could not authorize any demand response program
as part of that package. Nor could FERC simply allow such plans to
go into effect without its consideration and approval. There are no
“off the books” programs in the wholesale electricity
markets—because, once again, there is no regulatory “no man’s
land.”
Transcontinental, 365 U. S., at 19. The FPA
mandates that FERC review, and ensure the reasonableness of, every
wholesale rule and practice. See 16 U. S. C. §§824d(a),
824e(a);
supra, at 3, 14–15. If FERC could not carry out
that duty for demand response, then those programs could not go
forward.
And that outcome would flout the FPA’s core
objects. The statute aims to protect “against excessive prices” and
ensure effective transmission of electric power.
Pennsylvania
Water & Power Co. v.
FPC, 343 U. S. 414, 418
(1952) ; see
Gulf States Util. Co. v.
FPC, 411
U. S. 747, 758 (1973) . As shown above, FERC has amply
explained how wholesale demand response helps to achieve those
ends, by bringing down costs and preventing service interruptions
in peak periods. See
supra, at 20. No one taking part in the
rulemaking process—not even EPSA—seriously challenged that account.
Even as he objected to FERC’s compensation formula, Commissioner
Moeller noted the unanimity of opinion as to demand response’s
value: “[N]owhere did I review any comment or hear any testimony
that questioned the benefit of having demand response resources
participate in the organized wholesale energy markets. On this
point, there is no debate.” 76 Fed. Reg. 16679; see also App. 82,
EPSA, Comments on Proposed Rule (avowing “full[ ] support” for
demand response participation in wholesale markets because of its
“economic and operational” benefits).[
11] Congress itself agreed, “encourag[ing]” greater use
of demand response participation at the wholesale level. EPAct
§1252(f ), 119Stat. 966. That undisputed judgment extinguishes
any last flicker of life in EPSA’s argument. We will not read the
FPA, against its clear terms, to halt a practice that so evidently
enables the Commission to fulfill its statutory duties of holding
down prices and enhancing reliability in the wholesale energy
market.
III
These cases present a second, narrower
question: Is FERC’s decision to compensate demand response
providers at LMP—the same price paid to generators—arbitrary and
capricious? Recall here the basic issue. See
supra, at 9–12.
Wholesale market operators pay a single price—LMP—for all
successful bids to supply electricity at a given time and place.
The Rule orders operators to pay the identical price for a
successful bid to conserve electric-ity so long as that bid can
satisfy a “net benefits test”—meaning that it is sure to bring down
costs for wholesale purchasers. In mandating that payment, FERC
rejected an alternative proposal under which demand response
providers would receive LMP minus G (LMP-G), where G is the retail
rate for electricity. According to EPSA and others favoring that
approach, demand response providers get a windfall—a kind of
“double-payment”—unless market operators subtract the savings
associated with conserving electricity from the ordinary
compensation level. 76 Fed. Reg. 16663, ¶24. EPSA now claims that
FERC failed to adequately justify its choice of LMP rather than
LMP-G.
In reviewing that decision, we may not
substitute our own judgment for that of the Commission. The “scope
of review under the ‘arbitrary and capricious’ standard is narrow.”
Motor Vehicle Mfrs. Assn. of United States, Inc. v.
State
Farm Mut. Automobile Ins. Co., 463 U. S. 29, 43 (1983) . A
court is not to ask whether a regulatory decision is the best one
possible or even whether it is better than the alternatives.
Rather, the court must uphold a rule if the agency has “examine[d]
the relevant [considerations] and articulate[d] a satisfactory
explanation for its action[,] including a rational connection
between the facts found and the choice made.”
Ibid.
(internal quotation marks omitted). And nowhere is that more true
than in a technical area like electricity rate design: “[W]e afford
great deference to the Commission in its rate decisions.”
Morgan
Stanley, 554 U. S., at 532.
Here, the Commission gave a detailed explanation
of its choice of LMP. See 76 Fed. Reg. 16661–16669, ¶¶18–67.
Relying on an eminent regulatory economist’s views, FERC chiefly
reasoned that demand response bids should get the same compensation
as generators’ bids because both provide the same value to a
wholesale market. See
id., at 16662–16664, 16667–16668,
¶¶20, 31, 57, 61; see also App. 829–851, Reply Affidavit of Dr.
Alfred E. Kahn (Aug. 30, 2010) (Kahn Affidavit). FERC noted that a
market operator needs to constantly balance supply and demand, and
that either kind of bid can perform that service
cost-effectively—
i.e., in a way that lowers costs for
wholesale purchasers. See 76 Fed. Reg. 16667–16668, ¶¶56, 61. A
compensation system, FERC concluded, therefore should place the two
kinds of bids “on a competitive par.”
Id., at 16668, ¶61
(quoting Kahn Affidavit); see also App. 830, Kahn Affidavit
(stating that “economic efficiency requires” compensating the two
equally given their equivalent function in a “competitive power
market[ ]”). With both supply and demand response available on
equal terms, the operator will select whichever bids, of whichever
kind, provide the needed electricity at the lowest possible cost.
See Rehearing Order, 137 FERC, at 62,301–62,302, ¶68 (“By ensuring
that both . . . receive the same compensation for the
same service, we expect the Final Rule to enhance the
competitiveness” of wholesale markets and “result in just and
reasonable rates”).
That rationale received added support from
FERC’s adoption of the net benefits test. The Commission realized
during its rulemaking that in some circumstances a demand response
bid—despite reducing the wholesale rate—does
not provide the
same value as generation. See 76 Fed. Reg. 16664–16665, ¶38. As
described earlier, that happens when the distinctive costs
associated with compensating a demand response bid exceed the
savings from a lower wholesale rate: The purchaser then winds up
paying more than if the operator had accepted the best (even though
higher priced) supply bid available. See
supra, at 10–11.
And so FERC developed the net benefits test to filter out such
cases. See 76 Fed. Reg. 16666–16667, ¶¶50–53. With that standard in
place, LMP is paid only to demand response bids that benefit
wholesale purchasers—in other words, to those that function as
“cost-effective alternative[s] to the next highest-bid generation.”
Id., at 16667, ¶54. Thus, under the Commission’s approach, a
demand response provider will receive the same compensation as a
generator only when it is in fact providing the same service to the
wholesale market. See
ibid., ¶53.
The Commission responded at length to EPSA’s
con-trary view that paying LMP, even in that situation, will
overcompensate demand response providers because they are also
“effectively receiv[ing] ‘G,’ the retail rate that they do not need
to pay.”
Id., at 16668, ¶60. FERC explained that
compensation ordinarily reflects only the value of the service an
entity provides—not the costs it incurs, or benefits it obtains, in
the process. So when a generator presents a bid, “the Commission
does not inquire into the costs or benefits of production.”
Ibid., ¶62. Different power plants have different cost
structures. And, indeed, some plants receive tax credits and
similar incentive payments for their activities, while others do
not. See Rehearing Order, 137 FERC, at 62,301, ¶65, and n. 122. But
the Commission had long since decided that such matters are
irrelevant: Paying LMP to all generators—although some then walk
away with more profit and some with less—“encourages more efficient
supply and demand decisions.” 76 Fed. Reg. 16668, ¶62 (internal
quotation marks omitted). And the Commission could see no economic
reason to treat demand response providers any differently. Like
generators, they too experience a range of benefits and costs—both
the benefits of not paying for electricity and the costs of not
using it at a certain time. But, FERC again concluded, that is
immaterial: To increase competition and optimally balance supply
and demand, market operators should compensate demand response
providers, like generators, based on their contribution to the
wholesale system. See
ibid.; 137 FERC, at 62,300, ¶60.
Moreover, FERC found, paying LMP will help
demand response providers overcome certain barriers to
participation in the wholesale market. See 76 Fed. Reg.
16667–16668, ¶¶57–59. Commenters had detailed significant start-up
expenses associated with demand response, including the cost of
installing necessary metering technol-ogy and energy management
systems. See
id., at 16661, ¶18, 16667–16668, ¶57; see also,
e.g., App. 356, Viridity Energy, Inc., Comments on Proposed
Rule on Demand Response Compensation in Organized Wholesale Energy
Markets (May 13, 2010) (noting the “capital investments and
operational changes needed” for demand response participation). The
Commission agreed that such factors inhibit potential demand
responders from competing with generators in the wholesale markets.
See 76 Fed. Reg. 16668, ¶59. It concluded that rewarding demand
response at LMP (which is, in any event, the price reflecting its
value to the market) will encourage that competition and, in turn,
bring down wholesale prices. See
ibid.
Finally, the Commission noted that determining
the “G” in the formula LMP-G is easier proposed than accomplished.
See
ibid., ¶63. Retail rates vary across and even within
States, and change over time as well. Accordingly, FERC concluded,
requiring market operators to incorporate G into their prices,
“even though perhaps feasible,” would “create practical
difficulties.”
Ibid. Better, then, not to impose that
administrative burden.
All of that together is enough. The Commission,
not this or any other court, regulates electricity rates. The
dis-puted question here involves both technical understanding and
policy judgment. The Commission addressed that issue seriously and
carefully, providing reasons in support of its position and
responding to the principal alternative advanced. In upholding that
action, we do not discount the cogency of EPSA’s arguments in favor
of LMP-G. Nor do we say that in opting for LMP instead, FERC made
the better call. It is not our job to render that judgment, on
which reasonable minds can differ. Our important but limited role
is to ensure that the Commission engaged in reasoned
decisionmaking—that it weighed competing views, selected a
compensation formula with adequate support in the record, and
intelligibly explained thereasons for making that choice. FERC
satisfied that standard.
IV
FERC’s statutory authority extends to the Rule
at issue here addressing wholesale demand response. The Rule
governs a practice directly affecting wholesale electricity rates.
And although (inevitably) influencing the retail market too, the
Rule does not intrude on the States’ power to regulate retail
sales. FERC set the terms of transactions occurring in the
organized wholesale markets, so as to ensure the reasonableness of
wholesale prices and the reliability of the interstate grid—just as
the FPA contemplates. And in choosing a compensation formula, the
Commission met its duty of reasoned judgment. FERC took full
account of the alternative policies proposed, and adequately
supported and explained its decision. Accordingly, we reverse the
judgment of the Court of Appeals for the District of Columbia
Circuit and remand the cases for further proceedings consistent
with this opinion.
It is so ordered.
Justice Alito took no part in the consideration
or decision of these cases.